Innovation Lessons from The Great Reset

Over a year ago

by Dominic Basulto

Ever since the publication of The Rise of the Creative Class in 2002, Richard Florida has been at the forefront of the national debate about the role of the creative class -- writers and artists as well as white-collar knowledge workers -- in urban revitalization, regional economic development and the future of our cities. If you're living or working in a city that has created a district that resembles New York City's SoHo or TriBeCa (loft living, lots of creative types, cafes and funky shops), you can thank Richard Florida.

Florida's latest book, The Great Reset, offers up a future vision for America after the housing and financial crises exposed the contradictions and weaknesses in our current economy. Arguing that the current economic period more closely resembles the Long Depression of the 1870's rather than the Great Depression of the 1930's, Florida lays out a prescriptive mix for what policy makers, innovators and urban planners should be embracing over the next few years. The "new normal" will include less conspicuous consumption, less emphasis on massive suburban sprawl, and new thinking about transportation (i.e. more emphasis on high-speed rail).

There are several ideas and concepts in The Great Reset that really resonated with me:

(1) Every economic crisis has a "spatial fix." In other words, the Long Depression of the 1870's resulted in the transformation of America from an agrarian society to an urban society with large manufacturing cities while the Great Depression resulted in the transformation of America from an urban society to a massive, sprawling suburban/exurban society. What's next? Florida argues that we are about to witness the rise of massive "mega-regions" like Bos-Wash (the Northeast Corridor from Boston to Washington) and "Chi-Pitts" (the corridor from Chicago to Pittsburgh). Holding these mega-regions together will be high-speed rail lines.

(2) The service industry is America's most important source of future innovation. It's easy to dismiss many service-industry jobs as low-wage or low-value. However, as Florida argues, service industry workers at places like Whole Foods, Starbucks, Zappos, REI and The Container Store are emerging as important sources of innovation and value creation. Let's face it, America doesn't really "make" anything any more. We provide services. As technology and the Internet become ever more part of the service equation, the perceptions gap will narrow between high-end service industry workers (white-collar knowledge workers) and low-end service industry workers.

(3) The future of housing will become more plug-and-play. The goal of home ownership, once treasured as part of The American Dream, will continue to evolve. With so many people caught underwater in their mortgages, housing has been transformed from a long-term investment into a burden or obstacle preventing people from moving to where the jobs are. In 2008, American social mobility was at its lowest point since the 1940s -- quite simply, Americans were so caught up in owning huge McMansions, that they found themselves trapped when the housing market imploded. They literally couldn't sell their houses, except at a huge loss. As a result, Florida argues that the rental option, so popular in New York City, will become more popular nationwide. To encourage mobility, housing developers will build new types of "plug-and-play" housing communities. For example, check out these AVE extended-stay units from Korman Communities -- they're basically housing communities with furnished rental units and hotel-style services for people relocating to the New York City, Philadelphia and Washington, DC regions.

As an investor, I've already got a few big themes to consider for 2010. High-speed rail, as I've argued before, is going to be big -- as much as Warren Buffett loves the railroads, I do too. I'm also looking for new types of service industry companies that are embracing innovation and technology at the customer level. What are the companies or trends that you think could be part of The Great Reset?